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Is Biglaw Planning on Changing the Rules of The Game?

by Carolyn Elefant on January 27, 2009 · 5 comments

in Big Law/Small Law, Biglaw Practice and Issues, Ethics Issues

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Boo-hoo for biglaw.  Unable to cope with the economic downturn, biglaw may now try to change the rules of the game. Over at Ideoblog, Professor Larry Ribstein faults ethics rules such as the prohibition on non-compete agreements and non-lawyer investment in law firms and conflicts of interest requirements.  For example, Ribstein says that because firms are not permitted to impose non-compete agreements, partners will jump ship in troubled times, taking clients with them.  Economic problems are also exacerbated because sinking firms are often unable to seek shelter through mergers which often fall through due to conflicts of interest.  Finally, without access to private investment, firms rely on bank loans to meet financial obligations – which makes firms more vulnerable to bankruptcy if they can’t make repayments.  Ribstein sees no downside to eliminating these “archaic” rules, which he argues are designed to ensure that the law remains a profession not a business and don’t serve clients’ long term interests.

Ribstein’s got his facts right – in fact, I described the biglaw death spiral scenario last month.  But I don’t agree that the bar should jump to change our ethics rules just to bail out biglaw.  As I posted earlier today at Legal Blog Watch, law firms aren’t the only businesses subject to onerous regulation.  Most companies face legal and regulatory constraints but they devise strategies to deal with them.  Law firms failed to do so and now they’re paying the price.

So why should a solo like myself care if biglaw changes the rules?  After all, a few months ago, I wrote about how we solo and small firm lawyer may need to challenge bar regulations that interfere with educational lawyer blogging, virtual and non-traditional law practices and collaborative ventures between lawyers.  The problem is that the rules that biglaw wants to change won’t enhance competition, benefit clients or improve the practice of law, as Ribstein seems to suggest.  The ban on non-competes has enabled many biglaw attorneys (such as those described here) to jump ship with a handful of clients and then open their own practices where they charge lower rates and offer better value.  Conflicts rules (which have scant applicability anyway in an era of blanket waivers and consent) ensure that clients are zealously represented – but they also help prevent firms from gaining monopoly power within their given markets.  (As for non-lawyer outside investment in firms, I am looking to the UK to see the results – I’m curious about how it might work and how it might potentially benefit solos).

I feel badly for the hundreds of lawyers who’ve lost their jobs at large firms, and I’m saddened that some of this talent may leave our profession.  But having said that, I don’t think that changing ethics rules on conflicts or non-compete agreements will will help laid off lawyers.  Indeed, these changes would actually hurt departing lawyers because they’d be prevented from taking a small piece of business with them to start a new firm or from handling conflicts work, which is typically a rich source of referrals.

But Ribstein’s suggestion raises a larger question:  should the profession at large even care about rescuing biglaw?  I said no once before and I say it again now.  Solo and small firms comprise a majority of lawyers in the United States – close to 70 percent.  So why should we change the rules that serve all lawyers to accommodate a small segment of our profession?  That’s the real question that Ribstein needs to address.

  • http://blog.jparkhill.com Jay Parkhill

    Though I’ve never worked in a large law firm, I believe the problem is a singular focus on profits-per-partner. One firm does slightly better than another so a rainmaker jumps ship, which drives down the PPP number in the old firm, so more partners leave . . .
    The only reason this causes me any worry is that big firms are a major training ground for new lawyers. I feel bad for young associates who might lose their jobs because of management attitudes.
    And last, note that non-competes are unenforceable in California so that solution would not work here in any case.

  • http://seclaw.blogspot.com Mark Astarita

    Great post Carolyn. BigLaw decided years ago to finance its operations with bank loans rather than operate within its means. Didn’t Finley Kumble go under because of its bank loans that it couldn’t repay?
    So, because they don’t want to act responsibly, we should allow private investments in law firms? and force associates to sign restrictive covenants?
    Act responsibly, provide good service, and work hard and they wouldn’t have to worry about this nonsense.

  • http://www.whichdraft.com/wp Jason Mark Anderman

    Also, as you pointed out when commenting on this article, small firms are really leading the way in providing the best alternative fee arrangements. Jay Shepherd is doing quite well with this approach: http://www.shepherdlawgroup.com/approach_FAQ2.php

  • http://www.whichdraft.com/wp Jason Mark Anderman

    Also, as you pointed out when commenting on this article, small firms are really leading the way in providing the best alternative fee arrangements. Jay Shepherd at Shepherd Law Group is doing quite well with this approach.

  • http://southcarolinacriminaldefenselaw.blogspot.com Ryan Phillips

    Great post. It suggests an effort by Biglaw akin to interest groups lobbying Congress and the like. A very well-respected federal judge in my state speaks often about his sadness at the rise of Biglaw and fall of “profession-oriented” firms.

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